The UK's Labour party has proposed nationalising BT in order to offer free broadband over FTTP nationwide from 2030. While the plan appears highly unlikely to be implemented, it puts the subject of nationalisation on the agenda. The idea of turning broadband into a commodity, without the artificial scarcity added by ISP marketing, could also have an impact on the sector. Nevertheless, there are too many risks and too much downside in the plan to make it at all realistic.
Plan: nationalize fixed, free FTTP
The plan to nationalize BT is part of the Labour Party's proposals unveiled ahead of parliamentary elections planned in the UK for 12 December. At the moment, the party is behind the Conservatives in the polls, but this 'freebie' could boost their chances. The proposal includes the following:
- Only parts of BT would become publicly owned, including the fixed network (Openreach) and its service divisions (BT Consumer, BT Enterprise) and BT Technology, while the mobile arm EE would remain private. The new state-owned company would be called British Broadband.
- The new company would have two divisions: British Digital Infrastructure (for rolling out and running the FTTP network) and British Broadband Service (for offering the free broadband services). BDI would target 15-18 million connections by 2025 and a national network by 2030. The costs are estimated at around GBP 20 billion (less than 10% of fixed lines currently support FTTP). BBS is expected to save consumers an average GBP 30.30 per month.
- The network would be financed by a new 'Green Transformation Fund', as well as a tax on internet multinationals. This would support both the capex and the maintenance of the network (opex: GBP 230 million per year).
The Conservatives oppose the plan, and BT has said the cost estimates are much too low.
Positive: broadband as a commodity
Let's have a look first at the positive points of the Labour party's plan.
- The asset split is similar to the model implemented in New Zealand. Telecom NZ was divided successfully into a network arm Chorus (fixed, no services) and a services company Spark (mobile and services). However, both are listed on the stock market and are not state-owned companies.
- A free, national FTTP network is cost efficient over the long term, as free broadband reduces the economic burden. A piece of economic welfare is redistributed to consumers and the business sector. However, this comes at a cost for the commercial telecom sector, which would need to be compensated.
- The plan eliminates the artificial scarcity embraced by the telecom sector to market its services. Under the current system, the available bandwidth is divided into a wide range of possible subscriptions. Under Labour's plan, everyone gets the maximum bandwidth, for a fixed price. The result is significant cost savings, both at a commercial level (no more marketing) and operational (service management, billing). Sooner or later the sector will need to accept this and acknowledge that broadband is indeed a commodity.
Negatives: unrealistic, a commodity should not be free
There are also a number of major snags in the plan which make it unrealistic.
- Legal. This is a significant intervention in the market, turning the whole sector upside-down, and would likely prompt a number of lawsuits. This is more likely to slow the roll-out of fibre than speed it up.
- Political. If there is no political consensus on the plan, the next government can undo the changes. We've seen how this happens with the disastrous National Broadband Network in Australia.
- Virgin Media (Liberty Global) is BT's biggest competitor, with its own cable network. There are also many small FTTP operators rolling out networks, such as CityFibre (Goldman Sachs), Gigaclear (M&G Investments), Hyperoptic (KKR), KCom (Macquarie), Manx Telecom, JT, WightFibre and local initiatives (Jurassic Fibre, County Broadband, Community Fibre, Lothians, Fibrus, B4RN, etc). In short, infrastructure competition is alive and well, and the initiatives in the market will be stamped out if Labour's plan went ahead. Furthermore, the state would be required to buy out many of the assets.
- The plan would create a huge number of relevant assets, difficult to unite and integrate. Integration is needed though in order to create value - whether it be a state or commercial company. The process would not only take many years but require more short-term costs, leading to further delays in FTTP roll-out.
- Convergence. The separation of the fixed and mobile activities means the loss of certain synergies, such as sharing a core network.
- Mobile. If fibre broadband is free, this creates price pressure on mobile internet services (4G, 5G). This could have further effects on the mobile sector, slowing its investment and development.
- Jobs. Making broadband a commodity means the loss of thousands of jobs in marketing and technology.
- Free. Other commodities, such as water, are not free, so why should broadband be? (Google Fiber did start in 2012 with a free 5 Mbps service, but gigabit required payment). Offering free services to the business market increases the risks further, with a lot of money left on the table. The consequences of this are difficult to predict. Will free broadband encourage business and improve the investment climate? What is the impact on other players in the value chain, such as data centres and internet exchanges? etc.
In conclusion, there are many risks and too much potential downside to this plan. Nationalisation and turning broadband into a commodity are already significant interventions in the market, but by making broadband free as well, Labour's plan becomes completely untenable.
